Men threatened violence against associates in $100M military health care fraud, feds say

Prosecutors say the two men threatened to hurt snitches and if caught planned to flee to Costa Rica. One of the pair claimed that former Special Forces soldiers would make turncoats “disappear,” the government says in court filings.

The North Texas men are not gangsters or suspects in a murder conspiracy. Instead, John Paul Cooper and Richard Cesario are accused of running a white-collar fraud: scamming the military’s health insurance program.

Health care fraud has become big business in North Texas, experts say. In this case, millions of dollars that could have gone toward health care for members of the military and their families was wasted due to greed, authorities said.

Cooper, 47, of Southlake, and Cesario, 49, of Plano are accused in federal court of using threats and intimidation to run a $100 million fraud scheme in which they got the military to pay for expensive and unneeded compound medications for soldiers. They split the proceeds with the pharmacies and doctors, according to an updated indictment unsealed Friday.

Cooper and Cesario were charged in February with conspiracy to commit health care fraud and paying and receiving illegal remuneration; both have pleaded not guilty. Their lawyers declined to comment about the case.

The allegations of threatening behavior on the part of Cooper and Cesario emerged in recently filed court documents in the federal criminal case. The two men remain in federal custody, held without bond, partly because prosecutors say they are a danger to the community.

Compounding pharmacies tailor drugs to individual patients, usually in small batches, by altering dosages, mixing medications and converting pills into liquids. They used to operate like independent neighborhood pharmacies. But in recent years, the businesses have expanded by selling drugs to physicians and hospitals, making them more akin to drug manufacturers, the Food and Drug Administration says.

Suspicious billings

Federal authorities including the FBI and the Department of Defense’s investigative division have launched a nationwide crackdown on fraud targeting Tricare, the military’s health care system. Numerous compounding pharmacies, doctors and marketers have been charged in fraud and kickback schemes in California, Florida and other states.

In 2004, Tricare spent $5 million for compounded drugs. A decade later, spending on the specialty drugs had jumped to $514 million. It reached more than $1 billion in the first four months of 2015.

Last year, Defense Department health officials asked Congress for permission to shift $900 million within its budget to cover a projected $2 billion shortfall in Tricare’s budget, largely due to higher spending on compounded drugs.

Officials blamed aggressive marketing by some compounding pharmacies.

Jeffrey Baird, an Amarillo attorney, and Michael Elliott, the former head of a Medicare fraud task force who oversaw health care fraud investigations for the U.S. attorney’s office in Dallas, said they are aware of other Tricare fraud investigations that are continuing in the Dallas area.

The U.S. attorney’s office in Dallas declined to comment on other potential criminal cases involving Tricare in North Texas.

Trilogy representatives could not be reached for comment. Two of the company’s owners were among 10 new defendants named in the updated indictment; both pleaded not guilty.

Others charged were some of Cooper and Cesario’s associates, the owners of three other Texas compounding pharmacies and two doctors. Those who have been arraigned have pleaded not guilty. Most could not be reached, or their lawyers declined to comment.

Pain cream prescriptions

Cooper and Cesario formed a Dallas company, CMG Rx, and signed marketing agreements with the compounding pharmacies, federal court records show. Under those agreements, the pharmacies agreed to pay them a percentage of their revenue from Tricare claims, authorities say.

The defendants then drummed up business for the pharmacies, the indictment says.

They paid Tricare soldiers and their families $250 per month for each prescription they filled for compounded drugs provided by certain pharmacies. The soldiers were told it was part of a study, authorities said. The prescriptions were primarily for compounded pain creams, scar creams, migraine creams and vitamins, according to the indictment.

Cesario and Cooper also paid kickbacks to physicians — $60 for each compounded pain or scar cream prescription they wrote and $30 for each compounded vitamin prescription, officials say in court filings.

Federal court records portray the men as dangerous and sinister figures who used threats of harm to keep co-conspirators in line.

Cesario learned about the government’s investigation in May 2015 from one of his associates, said Assistant U.S. Attorney Douglas Brasher in a recent court filing. Shortly afterward, Cesario held a meeting with others during which he made “threatening statements,” Brasher said.

One person who was at the meeting told authorities that Cesario looked nervous and agitated and threatened to put people on “extended vacation” if they turned him in, according to the court filing.

“Cesario stated that he could ‘take care of anyone or anything’ and that he had the resources to ‘take someone out,’ ” Brasher said in the court filing. Cesario also spoke about former U.S. Special Forces members he knew who could carry out his threats and make people “disappear” if they interfered, Brasher said.

Brasher said they were not idle threats, although no evidence emerged that the men harmed anyone.

One witness who visited Cesario about three weeks before his arrest told a federal agent that Cesario answered the door holding a .45 caliber handgun. The agent also testified that 12 firearms were found during a search of Cesario’s home, including an “AK-47-style long gun.”

Cesario’s previous attorney, Derek Staub, said in a court filing that the person came to Cesario’s home around midnight and was pounding on the door for several minutes.

“Cesario may be a big and tall man, but is not someone who would cause harm — he has no criminal record and has never been found to hurt anyone in his life,” Staub said in the filing.

'Untouchable'

The government also presented evidence at Cesario’s detention hearing in March that he told people he intended to flee to Costa Rica if he were caught and that he would be “untouchable.” Cesario owns a condo in Costa Rica and bought a $50,000 Hummer H2 there, officials said. He also wired $500,000 there, prosecutors said.

Staub said in a court filing that Cesario is not a flight risk. The government froze all of his bank accounts and he has no money, Staub said. And Cesario has traveled abroad only a few times, he wrote.

“Cesario has strong, longstanding ties to the community and family,” Staub said in the filing. “He has four wonderful children that need their father home.”

The attorney complained in his court filing that while Cesario remains behind bars, Trilogy Pharmacy is “still conducting similar business.”

The Department of Defense said last year in a letter that it would no longer accept Tricare medical claims from Trilogy Pharmacy.

Trilogy dispensed compounded drugs to Tricare beneficiaries based on prescriptions written by a physician “whom we have concluded may not have established a physician-patient relationship with beneficiaries necessary to write valid prescriptions,” the Defense Department said in the letter to the pharmacy obtained by The Dallas Morning News.